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February 2, 2019

CPPCL to review tariff for 300MW Gwadar coal plant

Business

February 2, 2019

KARACHI: CIHC Pak Power Company Limited (CPPCL), developer of 300MW coal-fired power plant in Gwadar, has rejected the engineering, procurement, construction (EPC) stage tariff of Rs6.69/kWh determined by the regulator and urged for review to reconsider the tariff, a document said.

CPPCL had proposed a 30-year levelised tariff of Rs8.91/kWh for the power plant being setup at a cost of $542.36 million.

In a review petition, CPPCL contended that National Electric Power Regulatory Authority (Nepra), unilaterally reduced Return on Equity (RoE) from 17 percent to 14 percent justifying that the overall country risk came down and the need for power projects has reduced over time.

CPPCL noted that country risk was depicted by macroeconomic, indicators such as foreign exchange reserves, current account balance, and reserves adequacy, GDP growth etc, all of which were trending negatively since 2014.

Highlighting the fundamentals of Pakistan’s economy, CPPCL noted mere addition of power to the grid does not itself bring down the overall country risk, as total debt and liabilities have increased from Rs17.4 trillion in 2014 to Rs28.4 trillion in 2018; current account deficit has increased from $3.13 billion in 2014 to $18.13 billion in 2018; and foreign exchange reserves have reduced from $13.5 billion in 2015 to $9.89 billion in 2018.

It added credit rating at the start of 2015 by Fitch and Moody's was B and B3 respectively, which was considered a highly speculative country to invest in. The credit rating provided by Fitch and Moody's recently is B- and B3 respectively, which still falls under highly speculative category for investment.

The review petition also noted that the project was situated in a high risk zone, and the CSR requirements imposed on the company further justified the need for a higher return.

“In light of the above, we feel that the authority may kindly reconsider its decision on the matter and approve the return sought by the company of 17 percent,” it said.

CPPCL further contended that Nepra had used EPC cost signed by Jamshoro coal-fired power project as the benchmark for evaluating EPC cost of their project. “A 150MW unit project cannot be compared to a 660MW unit project as there is a significant escalation in terms of per MW costs for the former over latter,” it said.

CPPCL submitted the authority completely ignored the fact that the EPC cost was arrived at through a transparent and competitive bidding process. “Jamshoro plant should not be used as a benchmark and the number arrived at through a transparent bidding process as per Nepra guidelines should be used to arrive at the EPC cost of the project.”

Nepra disapproved black start generator cost of $10.8 million on the premise. “NEPRA should note that unlike other projects, CPPCL’s project requires black start generator facility as the local grid is isolated, unreliable and erratic. In case of a shut-down, plant will be restarted through self-generated power, failing which it will be at risk of penalties,” the review application noted.

While accepting the need for a desalination plant, Nepra has disallowed the rental, installation and dismantling of the desalination plant, which needs to be reconsidered, it added. CPPCL noted that the authority had disallowed several incremental costs on the premise, which also needs to be reconsidered.

According to the review application, the authority did not clarify whether non-adjustable sales would be included in the project cost or it be would allowed as a pass-through item to be recovered from Central Power Purchasing Company (CPPA).

Sponsors of the 300MW coal-fired plant in Gwadar have requested a clarification in this regard. CPPCL has also sought adjustment on account of overhaul and maintenance (O&M) costs.

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